Moneywise24 Personal Finance

This morning, as I was drinking my coffee and waking up slowly, I watched a report about a new type of scam which involves unauthorized bank transfers. Although the report mainly applies to the German banking system, this could also apply to other countries where law permits it.

Basically, fraudsters will generate a random bank account number, and they will try to transfer 1 cent to that account number. If the transfer bounces, it means that the account number is non-existent. However, if the transfer is accepted, fraudsters will know that the bank account exists. Next, fraudsters will fill in a bank transfer form manually (internet would not work, since fraudsters would need additional login details), pretending to be the bank account owner of the person, they had previously transfered 1 cent to.

In Germany, the trick would work, since banks are not obliged to check the validity of a transaction. Therefore, it is possible for transactions with invalid signatures or names to go through.

There is not much a bank account holder can do in order to prevent this type of scam. However, each and every account holder should check his/her bank account credits and debits regularly. If an unauthorized charge has taken place, the account holder can dispute the transfer, and chargeback the amount. At least in Germany, it is the bank’s responsibility to prove that the transfer was valid.

There are still so many flaws in the law, or a lack of specific control mechanisms, which make such fraudulent actions possible. If the bank would compare the name, account number, and signature of the account holder, this would significantly minimize the chance of such fraudulent cases.

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When I got home the day before yesterday, I had a very interesting message waiting for me on my answering machine. The text was clearly spoken by a computer, and although I already deleted the message, this is roughly what it said:

Hello, this is “Mr X”. Your number has just been selected from our database, and you are a winner. This is not a joke, you have just won a BMW 3-series, or the equivalent of 30,000 Euros in cash. Again, this is not a joke. You can claim your prize, a BMW 3-series or the equivalent of 30,000 Euros, by calling us within the next 48 hours. Please take a pen and a piece of paper, the number is 0900-739555…

I have to admit, I was a bit confused, perhaps a bit joyful. But I decided to research the internet first, before calling on. As I entered the number in Google, it appeared that many people had already written about the message message being a scam, and that calling the 0900 number would cost approximately 2 Euros per minute. The clue: the call center would stall callers as long as they could, but a prize (be it the car or the cash) would never get delivered to the individual.

I currently live in Germany, and having researched the topic a bit further came the next clue: the so-called company which had called me is located in Switzerland. Due to the border issue, it is extremely difficult to sue the company in order to obtain a prize. In fact, many had tried, where some succeeded but many failed.

Such automated calls are clearly scams, since nobody has anything to give away for free, especially if you cannot recall registering anywhere. Additionally, serious companies would contact you in person, and you would most probably have much more time than only 48 hours to respond. Fraudulent companies frequently make use of dialers, meaning that random phone numbers will be called, and as soon as a number is picked up (either by a person or answering machine), the number is saved in the database. Such databases are then frequently sold to third parties.

The sad thing is, that still many people respond to such calls. These are also usually people, who really could use the money and who are living on a tight budget. However, if you watch out for a couple of things, you can fairly easily identify a scam:

• If you are being called and the number of the caller is hidden, it is probably a scam (or another company or individual which clearly does not want you to call them back on that number).
• There is nothing for free without an initial investment. If you play the lottery, you will have to make a purchase first before you can win anything. However, if you won something without any effort from your side, it is probably a scam or a marketing campaign.
• Are you being told to respond within a very short time limit, such as 24 or 48 hours, then it might be a scam. Fraudsters do not want to give you enough time to think it over, or to conduct extensive research; you are being put under pressure.
• Are you being asked to call a very expensive number? Then it is quite obvious how this company is probably generating its earnings, namely via people calling them.
• If you are being told to call to a specific number, try to google that number. Posts and comments on scams are being spread on the internet extremely fast. If you find material on that number, read what people write about it.

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As I was watching the news this morning, I saw a report about a large number of credit cards, of which the data had been stolen in spain, and how this impacted many cardholer, who had made purchases in Spain. Being a specialist within the industry myself, I could not resist to write an further article on credit card data theft, and how you can deal with it as a credit card holder. This article is based on Visa and MasterCard issued credit cards only.

Each credit card transaction follows a strict procedure and a number of steps. As soon as a cardholder walks into a store, hotel, or car rental company, and wants to purchase an item or service, the credit card is usually swiped at the credit card terminal. The data on the credit card is read by the terminal, and then sent to the company’s bank, the so-called acquiring bank. The acquiring bank will receive the data, and the request for the transaction, and it will check with the issuing bank (the bank that issued the credit card, or the cardholder’s bank) whether there is enough credit availabe on that card, and whether the transaction is allowed. If the result is positive, the issuer will give the green light to the acquiring bank, which is passed on to the terminal in order to complete the transaction. Various methods exist today for completing a transaction, from the classic signature-based transactions to the more secure PIN & Chip.

In this particular case, fraudsters had stolen the credit card data directly from the acquiring bank, so there is nothing the cardholder could have done in order to prevent this from happening. Some credit card issuers have already started to block impacted cards. Nevertheless, there are a few things I believe each and every cardholder should be aware of in similair events.

Block your card immediately

If you are in Spain, or were in Spain recently, you may want to check with your issuing bank whether or not your credit card may have been impacted. If so, you should block your card immediately. Issuing banks are usually able to send replacement cards worldwide. Each issuer has a 24/7 hotline for such events, and you should call a service representative  in order to discuss with them the further proceedings.

Do not panic

I know it might sound weird, but many people do panic if they suspect credit card fraud, or if fraud had already occured; many people already start imagining losing thousands of Dollars at their own expense, even before anything has really happened. The first fact, however, is that once a credit card is blocked, the cardholder usually has no liability as to any losses occuring after having blocked the card. Secondly, if fraud occurs before the card has been blocked, the maximum liability to the cardholder is usually limited to a specific amount. Should this not be applicable in your case, perhaps you may want to think of changing your credit card issuer.

Transaction are regulated

What many people forget, is that the entire transaction process is regulated up to the smallest detail. These regulations describe the obligations and the rights of each party involved in the credit card transaction, from the cardholder to the merchant, from the issuer to the acquirer, and/or any other involved third party. If a fraudulent transaction occurs, regulations allow cardholders and issuers to initiate a dispute. A dispute is much like an investigation, in which the correctness of the entire transaction process is investigated. Should a party not have lived to its obligations, he may be required to stand in for the fraudulent transaction amount. In many cases, errors in the transaction process occur at the side of the merchant, which let fraudulent transactions go through. In this case, merchant will often be liable and need to stand in for the amount.

Tipps for merchants

If you are a merchant yourself, there are a number of things you can do in order to limit the number of fraudulent transactions:

1. Always use a POS terminal if available, and swipe the card. If not available, make a real imprint of the card using an imprint device, not just a copy. Copies will often not be valid as proof in a dispute case, that the credit card was physically present.
2. If a terminal is not available, always call your acquirer to verify the limit of the cardholder.
3. Ask the cardholder for an ID, and check the details with that on the credit card. Are the name and date of birth identical? Has the card not yet expired? Does the name on the credit card correspond with the gender of the cardholder?
4. Compare the cardnumber on the receipt with the imprinted cardnumber on the credit card. Are they identical?
5. Verify the signature on the back of the credit card with the cardholder’s signature on the receipt. Are they identical?

In order to get in-depth advice, you should definitely contact your issuing or acquring bank. They are able to tell you more about their fees, things to watch out for, and how they deal with credit card fraud; this might differ from bank to bank.

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I have been working in the credit card industry for some years now, and one topic which is keeping fraud departments busy is skimming. Skimming is a practice, during which the card details on the magstripe (magnetic stripe on the back of the card) is being copied, and then written onto another card.  Since the magstripe data is electronic, it could travel to the other side of the world before it written onto another card. Often, the cards used as a ‘host’ for the stolen data are stolen cards which have been blocked by its cardholders, making the original data on that card unusable.

Special devices are used in order to skim the card. Such devices might be present at a point of sale (shop, restaurant, petrol station, etc.), or they might be fixed onto the slot of an ATM machine, being hardly noticable. In the case of ATM machines, there is usually a small, hidden camera somewhere in the area, aiming at also the recording the PIN number of the cardholder. This makes it so vitally important to always cover up the key pad when entering the PIN.

In a shop, restaurant, or any other point of sale, skimming devices are usually placed out of sight for the cardholder. In a restaurant, the waiter will usually take the credit card away from the cardholder while the cardholder remains seated at his table, the waiter later returns with the credit card and bill to be signed. What the cardholder does not know is whether or not the card has been skimmed. In a shop or at a counter, the clerk may pull the card through the POS machine (the card reader, which makes credit card transaction possible), or something which looks like a POS machine. Usually it is out of sight. Some card skimming devices can be placed on or over a real POS device of any kind, so that the card is skimmed while making the transaction.

In order to avoid skimming, do not leave the credit card unattended. For example, in a restaurant you may want to join the waiter to the POS machine. Especially at ATM machines or other unattended credit card payment devices, look whether there are any signs of manipulation or small damage, you may even want to touch the slot and see if there are any loose parts.

Finally, you will know when your card has been skimmed if there are curious transactions on your credit card bill, from places where you have never been, while you still possess your credit card (i.e. you did not lose your credit card, nor was it physically stolen).

The following is intended to be a short guideline of the first necessary steps. Further steps in the process might be present, depending on the issuing bank and nature of the crime. Actually, these guidelines apply not only to skimming, but to credit card fraud in general:

• Do not panic! Contact the 24/7 hotline of your issuing bank immediately and block your card. Tell the employee what happened, so that it is documented. Blocking the card will not allow the fraudsters to conduct any further transactions, and usually you can not be held liable for any transactions occuring after you called in to block the card.
• Check your bank’s guidelines to find out whether they are requiring anything special from you. File a request for a dispute. There is usually a required timeframe to do this. For Visa and MasterCard this is usually up till 30 days after the transaction date.
• You bank will guide you through the rest of the process. You may be required to send a written statement to the bank, stating you did not make the transaction, and possibly why so.

The rest of the process will take place in the background. Usually, the issuing bank will raise a dispute in your name, and the acquiring bank (the bank of the shop or company, where the transaction has been conducted) will have to provide proof, that the transaction was valid, and that all possible measurements were taken to prevent fraud. In the case of skimming, for example, the credit card number on the customer receipt (generated from the magstrip) would deviate from the number hotprinted on the physical credit card. Besides that, the fraudsters would not know how your signature looks like, since they do not have the physical card with them. Last, merchants are always entitled, and should, ask for an identifiction. In the case of fraud, the identification would be different from the details on the card. In the event of proven fraud, the merchant will be held liable for the fraudulent transaction, and the money will be charged back, meaning it is transferred back to the issuing bank. Depending on your issuing bank, your bank might already have compensated for your losses by means of a temporary credit, or they might transfer it as soon as they receive back the funds.

However: should a “fraudulent” transaction have taken place with your PIN number, the transaction is usually identified as authentic, and you might lose the money for good. Therefore, your best option is to memorize your PIN number if you can. If you still choose to write it down somewhere, never store it somewhere together with your credit card, for example in your wallet or in your purse. Always keep the PIN separated and highly confidential.

The good news is: many initiatives are being implemented to fight credit card fraud. EMV, also known as Chip & PIN, is a chip placed on the credit card, which makes it very difficult to copy the credit card information. You will know when you have an EMV enabled card when there is a chip on it. In order for EMV to work, the merchant also needs to have EMV enabled. You will know this if you are asked to enter your PIN code for a credit card transaction rather than providing a signature.

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